A bill prohibiting credit card networks from charging businesses for “swipe fees” on tips and taxes has drawn support — and criticism — from both Democratic and Republican lawmakers.

During a House Finance Committee meeting last week, policymakers debated the merits of passing a bill that some said is nearly guaranteed to invite litigation. 

The bill’s backers said the swipe fees add a burden to small businesses, whose profits margins keep shrinking. Critics said that because the measure exempts large federal banks, it would achieve the opposite of what sponsors hope — it would make it more difficult for small financial institutions, with repercussions for customers.

House Bill 1282 — sponsored by Reps. William Lindstedt, D-Broomfield, and Max Brooks, R-Castle Rock; and Sens. Barbara Kirkmeyer, R-Brighton, and Lindsey Daugherty, D-Arvada — would bar credit card networks from charging businesses for “swipe fees.” These fees, also known as interchange or transaction fees, cover expenses like fraud prevention, bad debt and rewards programs. They account for about 2% to 4% of the total cost.

The Finance Committee advanced the bill, 9-3. It passed through the House on a 43-21 vote and will next be heard in the Senate Finance Committee.

Sponsors said large federal banks like Chase and Wells Fargo were excluded from the bill to avoid potential lawsuits. A judge ordered an injunction on a similar law in Illinois, prohibiting the measure from being applied to federally chartered and out-of-state banks.

Brooks told the committee that he and his cosponsors met with the Attorney General’s Office, where they were told that the state would be in a “defensible legal position” should the bill become law and face legal challenges.

“We should do better than allowing people to profit on local and state sales tax,” Lindstedt said. “I think the largest financial institutions in the world will be OK if they don’t take 3% of waiters’ tips.”

Sonia Riggs of the Colorado Restaurant Association said restaurants used to operate on 3% to 5% profit margins. Now, they are closer to 1% or 2% — if they are lucky. Riggs said swipe fees are the second-highest operating expense for many small restaurants in Colorado after labor costs.

“Between rising costs and the lingering impacts of inflation, operating a restaurant in Colorado has never been more challenging,” said Riggs. “On top of these financial pressures, restaurants continue to face an unnecessary burden, credit card swipe fees.”

While restaurant sales nosedive, swipe fees have increased by 50% in the past five years, said Riggs.

“By supporting this bill, you are standing with independent small businesses, the restaurants we all enjoy, and ensuring they can keep their doors open,” Riggs told committee members, adding Colorado restaurants could save $50,000 a year if the bill passed.

While sponsors maintained the bill would help the little guy, opponents, which included small banks and credit unions, argued it would do just the opposite.

Efforts to pass “swipe fee” legislation are underway in over two dozen states, said Jennifer Wagner, executive vice president and chief advocacy officer of GoWest Credit Union. If the bill becomes law in any of these states, Wagner said she expects “a lot of chaos.”

Most people have more than one credit or debit card, Wagner said, and if they know they would be charged more for using their credit union or small bank-issued card than their big-name card, they would choose the latter.

Wagner said while she does not believe the sponsors intended to go after small banks and credit unions, the measure could seriously harm Colorado’s independent financial institutions.

Katie March, GoWest’s vice president of legislative affairs for Colorado, said that major corporations would benefit from this bill, and they would do so at the expense of small business owners, workers and consumers.

“Something that we have a frustration with is that even if Walmart or Home Depot aren’t paying these fees, they can still charge the consumer fees without giving the cost back to the consumer when their small community institutions are taking on the cost,” she said.

“It’s just such a complicated system that it just feels way premature to be pushing this when none of those conversations have happened and there are still real uncertainties,” added Wagner.

While sponsors might have tried their best to craft the bill to avoid potential suits, Wagner said litigation is inevitable.

Several members of the House Finance Committee agreed, although some argued that the potential for legal action should not be a dissuading factor in passing the bill.

Rep. Yara Zokaie, D-Fort Collins, admitted the bill is a tossup for her and is “begging for a lawsuit.” However, she decided it is the legislature’s job to assess the boundaries of the law, “and unfortunately, that is through litigation.”

“I don’t believe that the threat of a lawsuit determines the validity of a policy,” Rep. Lorena Garcia, D-Denver, also said.

The federal government has a longstanding history of developing policy at the state level first, and passing this bill and similar measures in other states shows federal officials this is something the states want.

Rep. Sean Camacho, D-Denver, disagreed, arguing that passing a bill guaranteed to bring litigation when the state is already in so much debt is irresponsible.

“I’m not tone-deaf to the fact that there are restaurants and small businesses and workers in my community that are really hurting. I just don’t think this is the bill to fix it,” he said.